Back Within the Channel January 25, 2020

Jan. 25, 2020 – The price action on Friday afternoon took out all of the gains for the week. We could kind of see it coming . . narrow range bars that have overshot the top of the price channel. A narrow bar shows that buying is being absorbed by selling and that they are nearly equal. Bringing prices back within the channel can be considered a healthy sign. I’m thinking that short term traders were nervous holding positions over the weekend, plus it’s always nice to “ring the cash register” every so often. A little move was likely amplified by computer programs (a.k.a. “algos”) which instantly jump on a price move in either direction for a quick profit. In & out.

Also of note is that the Money Flow indicator turn (barely) bearish and Sentiment has gone from Bullish to Neutral. We’ll need to wait until Monday to see if there is any follow through past the first hour of trading. We could go back to “buy the dips” mentality in short order. So this test is a good one to gage the overall health of this market. Sure, the virus and impeachment scare could be factors, but I’m hesitant to accept all of that right now. (click on chart to enlarge it)

Broadly the 1500 stocks in the S&P 1500 looks like this . . .

Price Strength –

Accumulation/Distribution –Price Strength has weakened, but stocks in general have not succumbed to broad based selling (i.e. distribution) at this time.

Sector Strength –

I do note that some defensive sectors (Utilities and Real Estate) have moved up towards the top, though select Technology issues return strong (so far). This correction is OK as long as it stabilizes at / near the support level of 9193 (red dashed line on the price chart) and it was expected. We will know the actual strength early next week by observing the price bar spread (difference between high & low prices) plus the volume being traded. Wide down bars on higher than average volume would confirm weakness.